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Enter a daredevil

A year ago, as the "Great Panic" was reaching its peak, Gordon Brown cast around desperately for someone to lead the disgraced anddemoralised Financial Services Authority. The City regulator, created in 1997, was a critical part of the Brown legacy, and was facing the greatest challenge in its history, with the fate of some of Britain's biggest banks in the balance. Just as he did when he brought Peter Mandelson back from Brussels to strengthen the political credibility of his troubled administration, Brown reached out to an old adversary: Adair Turner.

Brown and Turner had clashed bitterly in 2005 after the publication of Turner's Pensions Commission report. It had strayed into Treasury territory by proposing a restoration of the earnings link for state pensions, with all the cost that implied for future fiscal policy. A ferocious public row ensued, with the Brown camp leaking secret correspondence to the Financial Times pointing out the expensive consequences of adopting Turner's proposals. With the aid of the prime minister, Tony Blair, and the then work and pensions secretary, John Hutton, a compromise was reached - the earnings link would not be restored until 2012, and only if fiscal conditions permitted. But the scars were left.

Turner had few regrets about taking on Brown. As he told me recently: "I only wish now I had been even more radical." Yet, when it came to filling the vacant chairman's job at the FSA, Brown eventually settled on Turner, even though he had unfinished business as chairman of the UK Committee on Climate Change.

Turner has a blend of skills unusual in British politics. His analytical powers were honed during 13 years at McKinsey (where he rose to the very top). A colleague at McKinsey recalls how "Turner stood out", even among the best and brightest minds. Partners would join him at the lunch table, where he showed an ability to cut through the knottiest problems. Add to this his political experience as director general of the Confederation of British Industry and a stint in the City as a top European adviser to the "thundering herd" broker Merrill Lynch, and you had the near-perfect candidate for the FSA.

Within days of taking office on 20 September 2008, Turner was thrust into the daunting process of stress-testing Britain's high street banks to decide which could survive the crash and which would need bailing out. It was on the FSA's judgement that the Royal Bank of Scotland and Lloyds Banking Group (the merger encompassing the old Lloyds TSB and HBOS) eventually fell into government hands. What Brown perhaps forgot was that Turner had a fierce maverick streak and a belief in his own intellect that could potentially be harmful to the government.

Though he was nicknamed "Red" Adair in parts of the press (because of his calm dealings with New Labour during his time at the CBI), his politics were enigmatic. As a student, he had been chairman of the Cambridge University Conservative Association. Once, when he was preparing his pensions report, I saw him incandescent with rage over the cowardice of the Labour leadership hopeful Alan Johnson, then at the Department of Trade and Industry, who had failed to reform an overgenerous public-sector pensions system.

Turner's blueprint to save the FSA was unveiled in March 2009. It provided a forensic examination of the causes of the banking collapse, pointed to the FSA's failings and provided a route map for Chancellor Alistair Darling's banking white paper. Turner recognised that the banks had been too softly regulated and would, in future, have to hold far more capital against risk.

He proposed that the incentives and bonuses paid to directors be curtailed. The clarity of the report was hailed in government and the City and by business. Once again, it seemed, McKinsey analysis had triumphed.

But as with his earlier Pensions Commission report, Turner was beginning to wonder whether he had gone far enough. George Osborne and the Tories thought not. They respected the analysis, but still plan to abolish the FSA, which they believe is too flawed to save.

In conversation with me, Turner appeared unperturbed by Osborne's proposals (drawn up by the former Treasury mandarin James Sassoon). His main concern was that they might undermine morale at the FSA while it was seeking to reform itself. What none of us who regularly report on Turner and financial regulation recognised was that his period at Merrill (and subsequently delving into the entrails of British banking) had awakened within him a deep scepticism. He had begun to question the morality of super-sized banks, the usefulness of the regulator and the privileged role accorded to the City by New Labour.

Offered a chance to think freely, as he was at a round-table discussion hosted last month by Prospect magazine, he showed no reticence. In the presence of the former deputy governor of the Bank of England John Gieve, Turner cut loose. He described the City as "swollen", questioned its social usefulness and went as far as to propose a revival of a 1970s idea - the Tobin tax, a levy on all cross-border currency transactions.

The Treasury was shocked by Turner's perceived act of betrayal. His former colleagues at the CBI launched a fearsome attack, and bankers and the City Establishment were shaken. Unlike so many New Labour dissidents in the past, Turner was not in the game of humbling retractions. Nor could Brown and Darling contemplate sacking him, with all it would imply for stability in the markets and regulation.

Turner's radicalism came as a huge surprise. It placed him at odds with a government still unwilling to alienate the City and hoping that it can be revived as a source of tax revenues. But he is on the right track. What revival there has been among the banks, notably at Goldman Sachs and Barclays, has largely been in "casino" dealings in the wholesale markets. Loans for businesses and individuals remain as restricted as ever, in spite of the billions in subvention from the government. Turner's message was one the authorities did not want articulated.

Labour, in its desperation for stability, has installed a refreshingly original thinker at the FSA. Finally, after more than a decade of trying, it has the independent voice with surprising populist force that a determined regulator needs.